Startling new research by the Jubilee Debt Campaign has found that debt burdens in impoverished countries have increased significantly since the debt cancellation of the 2000s.
This follows the fallout from the global financial crisis as well as private sector expansion in the global south. The report finds this threatens to extend the 30-year pattern of debt crises across the globe, from the Mexican debt crisis of 1982 to the Eurozone debt crisis of today.
Campaigners have responded by calling for a “new debt jubilee”. In the late 1990s and early 2000s, churches and Christian groups joined with wide range of civil society groups, charities and NGOs to lobby for cancellation of debts owed by the global south to the west. They celebrated partial success, but the results now appear to be under threat.
The report, The State of Debt: Putting an end to 30 years of debt crisis, investigates for the first time the external debts of both governments and the private sector in low and lower middle income countries.
Analysing newly-compiled data from international financial institutions, it finds that private sector debt payments out of impoverished countries are now double those of the public sector, a complete turnaround since the year 2000. High private sector debts have been the main cause of the financial crisis in countries such as Spain, Ireland, Iceland and the UK.
The report’s author, economist Tim Jones said, “The rich world is currently gripped by a debt crisis caused primarily by reckless lending and borrowing between private banks. Worryingly, this kind of dangerous debt is now on the increase in impoverished countries, at a time when world leaders think the problem of Third World Debt has been solved.”
He insisted that the problem could be solved only with major change to international economic systems. “We urgently need a global system for regulating the way money moves around the world, to prevent large debts being created between countries, and bring thirty years of destructive debt crises to an end.”
Jones’ report finds that the negative impacts of the financial crisis – including falling trade revenues, loss of money sent home from migrants and multinational companies sending more money back to the rich world – have seen lending to the 35 most impoverished country governments almost double from $5 billion in 2007 to $9 billion in 2009.
As a result, government debt payments by impoverished countries are predicted to rise by a third by 2014.
Perhaps the report’s most alarming finding is that three of the countries that had some of their debt cancelled in response to the global jubilee campaign – Mozambique, Ethiopia and Niger – are all soon expected to be spending as much on foreign debt payments as they were before receiving debt relief.
The International Monetary Fund (IMF) and World Bank say 19 of the 32 countries that have received debt relief are at high or moderate risk of not being able to pay their debts. Despite this, the IMF and World Banks are themselves the largest lenders to the most impoverished countries - responsible for 45 per cent of new loans.
Jones acknowledged that “debt cancellation has led to falling debt burdens, and increased government spending in areas such as education”.
But he added, “Too little has been done to prevent debts increasing again, and financial deregulation has left countries vulnerable to the knock-on effects of debt crisis in the rich world. It is shocking that the IMF and World Bank themselves are responsible for almost half the lending to low income governments.
Jones and the Jubilee Debt Campaign called for “a new debt jubilee that involves not just one-off cancellation, but measures to prevent large debts being created”.
Thirty-two countries have had $120 billion of debt cancelled over the last decade in response to the global Jubilee campaign. Government foreign debt payments in these countries have fallen from 20 per cent of government revenue in 1998 to less than five per cent in 2010. In these countries, the number of children enrolled in primary school has increased from 63 per cent in 2000 to 83 per cent in 2010.
Some countries which did not qualify for debt cancellation continue to have extremely high debt burdens. The Philippines, Sri Lanka and El Salvador all spend a quarter of government revenue on foreign debt payments.
The report includes case studies of Jamaica, Sri Lanka, Mozambique, Ethiopia and Georgia.